The 19-Year Sales Tax Holiday

Since its founding in 1994, Amazon has enjoyed a competitive advantage over local retail stores: Amazon does not collect sales tax. Of course, Massachusetts residents are still required to pay "use" tax for such purchases. However, many people neglect to pay taxes on Amazon and other online purchases. Come this Fall, Amazon will start collecting sales tax from Massachusetts residents, bringing an end to the 19-year sales tax holiday.

Many states are struggling with budget shortfalls and seeking alternative revenue—or, in this case, restoring revenue lost, in part, to the Internet. Massachusetts is one of the latest states to strike a deal with the web's largest retailer. The deal was precipitated by Amazon's purchase of a Massachusetts company and subsequent opening of a Cambridge office. Even in a sluggish year, enforcing a sales tax on Amazon purchases could account for $387 million in revenue.

The news comes as a relief to many local retailers. Even relatively high ticket items such as computers may have as little as a 10% markup, of which 3% is probably lost to the credit card companies. A 6.25% sales tax puts local retails at a severe competitive disadvantage to online retailers such as Amazon.

This agreement only applies to Amazon. It does not extend to other online retailers without a presence in the state. Federal legislation is in the works to establish a framework for sales tax collection which would, ostensibly, apply to all online retailers. For the time being, Massachusetts residents will need to continue paying use tax for most other online purchases.